While the world economy is slowing down, China's economy is still robust. In the first half of this year, it grew nearly as fast as in the last years, and the Yangtse delta
region(*) played a locomotive role in the development of the country's economy.

The GDP of China rose 7.9% to 4.2942 trillion Yuan (517.4 billion USD) during the first six months of this year. In the same period, the growth rate of the Yangtse delta region was more than 10%, two percentage points higher than China's average. According to local statistic authorities, the GDP of Shanghai reached 230.3 billion Yuan in the first six months of this year, an increase of 10.2%; in Jiangsu, the GDP was 418.8 billion Yuan, an increase of 10.4% and in Zhejiang 313.6 billion Yuan, an increase of 10.5% (See table below).

The aggregated GDP of the delta region climbed to 962.69 billion Yuan, accounting for 22.4% of China's total, a remarkable result compared to its rather low percentages of population (10.9%) and area (2.2%).

2. Investment in Public Works: One of the Main Contributors to Growth

The national economy was driven first by heavily increased investment in public works, especially in infrastructure. Statistics show that the growth rate of completed investments in fixed assets in the delta region was a little higher than the country's average (15.1%) in the past months, but the growth rate of total retail sales of consumer goods was lower than China's average (10.3%). Furthermore as the "Heaven of China", the delta region did not meet any major natural disasters as some other provinces.

A large scale of highway construction has been undertaken in the delta region. In Shanghai, the highway under construction, or at its beginning, amounts to 160 km. The project of the magnetically-driven railway linking Metro-Line 2 and Pudong Airport started in March 2001 and will be completed within two years. In Zhejiang, the government installed 8.4 billion Yuan in its budget for this year to prolong its highway for another 143 km. The highway from Shanghai through Hangzhou to Ningbo is being broadened to 6 or 8 lanes, and in Jiangsu, the highway along the Yangtse river (137 km) with an investment of 5.6 billion Yuan is under construction. It will be completed before the end of 2004. These are only some examples.

3. Export and Foreign Investment: the Other Two Contributors to Growth

The economic growth of the region was further supported by rapid increase of exports and foreign investments. During the first half of 2001, Shanghai exported goods with a value of 13.74 billion USD, an increase of 16.9% compared to the same period of last year; Jiangsu exported 13.79 billion USD, an increase of 18.4% and Zhejiang's export was 10.67 billion USD, an increase of 21.8% over the same period last year. The provincial export growth was thus much higher than China's average growth rate ( 8.8%). The region's total export value increased by 18.7 % compared to the same period of last year, and reached 38.203 billion USD, accounting for 30.7% of China' total (124,57 billion USD). Nonetheless it is important to see that the growth rate of exports has reached only a third of the exceptional growth rates for the same period last year. A "normalisation"
of export growth has thus taken place.

The delta region therefore holds a leading position in China's foreign trade. In fact, after Guangdong province, Jiangsu and Shanghai ranked second and third in exports (including processing industries) among the provinces of China. Zhejiang is one of the most aggressive trading provinces in China: its export volume was considerably bigger than its imports. In terms of ordinary trade (excluding processing industries), Zhejiang is the biggest exporter in China. Its trade surplus exceeded 11 billion USD last year, accounting for 45.8% of China's total. A strong contribution to the success of Zhejiang was made by private and collective enterprises, getting more export rights in the last few years. During the first six months, private and collective enterprises exported goods for 2.42 billion USD, an increase of 82.8%. The contribution rate of private and collective enterprises to the export increment of the province amounted to 57.3 %.

A similar situation was also shown in the delta's foreign investment. The region saw an accelerating influx of foreign direct investment during the first half of this year, totaling 14,453 million USD in terms of contract value, and accounting for 43% of China's total ( 33,410 million USD). Contracted foreign investment in Shanghai increased to 4,003 million USD (82.2%), in Jiangsu to 8,211 million USD (75.93%, on the first place) and in Zhejiang to 2,239 million USD (100.4%). In China as a whole, it was "only" 38.23% compared to the same period of last year. As usual, the actually used credits fall short of the contracted ones (cf. table). The growth rate of used credits only comes to about a fourth of the growth rate of contractual credits.

4. Economic Integration: a Tendency in the Delta Region

Local protectionism still exists in China. In many areas it became even stronger in the last few years. In the delta area, however, a tendency of integration is growing, due to economic development, increased common interests and the strong power of the central government in Beijing. Modern highway networks and telecommunication possibilities grow rapidly in the area and support the general trend.

Nowadays, the local authorities in the delta region are making efforts not only to attract foreign capital, but also investment from other provinces. Recently, mutual investments grew considerably stronger. Shanghai, in particular due to its special position as economic, financial, transport, logistics and information center, is the biggest importer of net capital. During the first half of this year, the investment by
enterprises ( other than by natural persons) from other provinces in Shanghai totaled 6.66 billion Yuan (in 397 projects), a rise of 90.8% compared to the same period of last year. Among the main investors were enterprises from Beijing, Zhejiang, Jiangsu and Liaoning. Some enterprises start to move their headquarters to Shanghai.

Investment from other provinces is also increasing in Jiangsu, due to its good location, especially in the southern part of Jiangsu, where the famous "new markets" like Suzhou and Wuxi are located.
The fact that Zhejiang as the biggest net capital exporter has been taken notice by the Chinese media. The people of Zhejiang became rich through their business activities all over the country and the world. They have accumulated enormous wealth, concentrated mostly in private hands. A considerable amount of the capital is re-invested in their home places - it accounted for ca. 70% of the total investment in the province, but an important part of private funds were still idle, estimated at about 350 billion Yuan, ten percent being in the hands of Wenzhou people alone.

5. The Challenges: Still Serious

Generally speaking, the economic situation in the delta region will remain dynamic and stable in the near future. The year's GDP growth target of 7%, set by the central government for the whole of China and a double-digit increase by the delta region provinces will be realized.

To accelerate the economic growth, Chinese governments, central and local, continued to pursue an pro-active fiscal policy. They took measures to stimulate investment, consumption and exports. China will issue 150 billion Yuan in government bonds this year. Huge investments in infrastructure construction will be continued. Beijing winning the bid to host the 2008 Olympic Games will also add fuel to the country's economy in the coming years.

But the challenges are still there. The Chinese government is facing not only the slowdown in the world economy, especially in the markets of the United States, strongly reducing demand from abroad and slowing export growth already this year. Slower growth of private consumption is to be expected too. The deteriorating employment situation and lagging rural income, badly influenced by the droughts of summer 2001, will also start to effect the growth rate of 2002.

Re-employment of the laid-off workers remains a problem all over China. At the end of June, according to Chinese official statistics, there were 6.19 million registered unemployed persons, an unemployment rate of 3.3%. The situations in Zhejiang and Jiangsu is relatively good, while unemployment in Shanghai remains a big problem. Recently, the urban unemployment rate reached 3.8% (with 218,000 laid-off workers), compared with 3.5% at the end of last year. About four million immigrant workers from other provinces (mainly from Anhui, Henan, Sichuan and northern part of Jiangsu ) marked the employment situation in Shanghai. Their presence has a clear dampening effect on the employment situation as their employment or unemployment does not show in any official statistics. Unemployment will remain one of the biggest problems in China and in the delta region during the whole period of transition from the plan economy to a market economy.
Li Rongzhang

(*) The Yangtse delta region refers to Shanghai, Jiangsu and Zhejiang.
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Current Economic
Indicators(**)
of the Yangtse Delta Region

Source: Chinese Authorities
** All statistics not including Taiwan, Hong Kong and Macao. Back
to Table.